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Rethinking Common vs. Private Property (4): towards responsible and democratic corporations

photo of Michel Bauwens

Michel Bauwens
26th August 2012


Excerpted from:

* Article: Rethinking Common vs. Private Property. By David Ellerman

This concludes our four part serialization of this important essay, which was started on August 20.

Workplace democracy as legitimate corporate governance model

David Ellerman writes, , on Re-constituting the corporation from first principles:

The responsible corporation

“There have been a few — very few — social commentators who have pointed out the roots of the institutionalized irresponsibility in the absentee-owned joint stock corporation.

In his 1961 book aptly entitled The Responsible Company, George Goyder quoted a striking passage from Lord Eustace Percy’s Riddell Lectures in 1944:

- Here is the most urgent challenge to political invention ever offered to the jurist and the statesman. The human association which in fact produces and distributes wealth, the association of workmen, managers, technicians and directors, is not an association recognised by the law. The association which the law does recognise—the association of shareholders, creditors and directors—is incapable of production and is not expected by the law to perform these functions. [Percy 1944, 38; quoted in Goyder 1961, 57]

As indicated by Percy and Goyder, the basic solution is the re-constitutionalizing of the corporation so that the “human association which in fact produces and distributes wealth” is recognized in law as the legal corporation where the ownership/membership in the company would be assigned to the “workmen, managers, technicians and directors” who work in the company.

The bundle of corporate rights

We are now in a position to parse the rights involved in a corporation so that we may consider how the rights might be differently structured in a democratic firm based on first principles. We simplify down to the essentials: the voting rights (to elect the board to select the management and to vote on any other questions put to the owners/members) and the economic value rights which can now be parsed into the net asset value and the profits rights. The net asset value is for the current time but the voting and profit rights need to be broken down into the current rights and future rights after the current time period. Thus we have the following taxonomy:

Corporate Rights

A. Voting Rights

A.1. Current Voting Rights

A.2. Future Voting Rights

B. Value Rights

B.1. Profit Rights

B.1.a. Current Profit Rights

B.1.b. Future Profit Rights

B.2. Net Asset Value.

In the above taxonomy, it is the corporate rights which are being listed, not the non-existent rights to the “ownership” of residual claimancy (see earlier discussion of the fundamental myth). In the conventional joint stock company, these corporate rights (voting + value rights) are property rights represented by the common voting shares that may be owned and freely transferred as any other property rights.

The structure of rights in a democratic corporation

In a democratic firm such as a worker cooperative, the corporate ownership rights are not only rebundled but are assigned on a different basis. The voting rights are assigned on the basis of democratic principle of self-government. The people working in the firm are the only people under the management of the firm’s managers so by the democratic principle, the voting rights to elect those managers (perhaps indirectly through board election) should be assigned to the people working in the firm. Note that this assignment to those people is based on the assumption that those people are playing a certain functional role, i.e., working in the firm. They do not “own” the voting rights as property rights to be held or sold independently of their functional role. It is the same with voting rights in a political democracy. For instance, the voting rights in a democratic town or municipality are attached to the functional role of residing in the town or municipality.

We call rights assigned to a functional role personal rights. Where the entitling functional role is just being a person, then those personal rights are the basic human rights. In a democratic community of work or of residence, then the functional role is working in or residing in the community. In any case, such personal rights may not be sold as alienable property rights since the buyer may not have the entitling role, and if the “buyer” had the entitling role, then he or she would already have the rights on that basis.

The workers in the firm change so the assignment of the voting rights will change with the workforce. The future workers, like the future citizens in a political democracy, do not have to buy their voting rights from the present holders. Hence the separation of the (A) Voting Rights into the (A.1.) Current Voting Rights and (A.2.) Future Voting Rights. It is the (A.1.) Current Voting Rights that are part of the bundle of Membership Rights attached to the functional role of currently working in the democratic firm. The (A.2.) Future Voting Rights would be assigned when the future becomes the present.

The second normative principle, here called the responsibility principle, is just the standard jurisprudential norm of assigning to people the legal responsibility for the results of their deliberate and intentional actions. The intentional actions of the people working in the firm produce the outputs by using up the raw materials, intermediate goods, and the services of the durable goods in the firm. In net terms, the revenue from the outputs minus the non-labor costs for the inputs is the net valued added which can be parsed as: wages + profits. That is the net value of the assets (outputs) and the liabilities (for non-labor inputs) that the people working in a firm are jointly de facto responsible for producing. Hence by the responsibility principle, they should legally appropriate those assets and liabilities and thus receive the net value added. Since they already receive the wages, the additional value accruing to the people in a democratic firm is the (B.1.a.) Current Profit Rights. Thus those rights would also be in the bundle of membership rights assigned as personal rights to the functional role of working in the firm. As one might expect, the (B.1.b) Future Profits Rights represent the future positive and negative products that would be assigned to the future workers who produce them.

Thus on the basis of the first principles of democracy and private property (responsibility), we have accounted for all the rights except the (B.2.) Net Asset Value rights.

Current workers will, to be sure, use up the capital services derived from the company’s assets and that is why they are held legally responsible for those liabilities, but we are now concerned with the rights to the net asset value. This value represents property assets and liabilities accumulated in the firm by production and exchange activities in the past.

The system of internal capital accounts, pioneered by the Mondragon cooperatives [Ellerman 1990], is the means of keeping track of that history in a democratic firm so that the net asset value is owed in varying amounts to current and past members. They contributed to that value through any membership fees paid in and through any profits (or losses) retained in the firm rather than being paid out (or assessed in the case of losses). These claims could be thought of as a form of “internal” debt (like a shareholder’s loan) subordinate to all other (external) debts. Indeed, the internal capital accounts should be interest bearing. Those net asset rights (B.2.) are property rights, not personal rights. One litmus test to distinguish personal and property rights is inheritability. If a member dies, the voting and profit rights (like political voting rights) do not pass to the person’s estate, but the internal capital account balance would be a debt of the company to the estate of the deceased member.

Parsing the rights in capitalist and democratic corporations

Thus we have seen how all the corporate ownership rights are rebundled and assigned in a democratic firm. The current voting and profit rights are bundled together as the membership rights attached to the functional role of working in the firm (in practical terms, usually after a certain probationary period) so the future voting and profit rights would go to future members, and the remaining net asset value rights are captured in the system of internal capital accounts held by the current members. The rights structure in the so-called “capitalist corporation” and the democratic corporation can now be compared point-by-point in the table.

One important thing to notice is that in the democratic firm, the whole notion of the “ownership” of the company has evaporated. The old debate between private and social ownership of companies has been reframed. It is precisely the application of the private property principle to the products of labor that entails the company (implementing that responsibility principle) cannot itself be property. The membership rights are personal rights, not property rights, so a democratic company cannot itself be property. Similarly a democratic town or municipality may own property but is not itself a piece of property.

Hence we have finally arrived at an analysis very different from the usual treatment of privately owned conventional firms versus worker cooperatives or democratic firms. The democratic firm is a democratic human organization, and it is quite muddled and misleading to describe it as a piece of property that is socially or commonly owned. And its “non-ownership” follows from the private property (responsibility) principle applied to the products of labor.”

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11 Responses to “Rethinking Common vs. Private Property (4): towards responsible and democratic corporations”

  1. peadar oceallaigh Says:

    Michel, a very interesting article. Firstly do you have links to parts 1 – 3 !

    George Monbiot covered similar ideas in his book captive state, obviously stating the labour party were following the same path.

    1. Corporate commons and persona ficta regardless of which ideology you support ?

    2. Do you identify this trend with Local agenda 21

  2. Michel Bauwens Says:

    Hi Peadar,

    Unfortunately I’m not very aware of Local Agenda 21 ?

    Parts 1 to 3 are of course available in the original from Ellerman, that I’m quoting from.

    Otherwise, they are available here:

    1. http://blog.p2pfoundation.net/rethinking-common-vs-private-property-1-introduction/2012/08/20

    2. http://blog.p2pfoundation.net/rethinking-common-vs-private-property-2-market-responsibility-vs-corporate-irresponsibility/2012/08/22

    3. http://blog.p2pfoundation.net/rethinking-common-vs-private-property-3-common-myths-about-private-property/2012/08/24

  3. peadar oceallaigh Says:

    MICHAEL

    Thankyou for this, unfortunately we have already had models of corporations in say enron and its opposite in the soviet malaise in their corporations. Both models having difficulty, not just democratically but financially regardless of their structure.(fallacy of perfect competition, and problems of long term fixed capital)

    If local agenda 21 is different from above, what new benefits will workers have ? it is a global local planning initiaitve which which effects the points you are addressing in your articles.

    I have posted one view on my p to p wall from the usa, what do you think ?

    Regards

    Peadar

  4. Michel Bauwens Says:

    I’m not sure I get the relationship between local agenda 21 and corporate reform. My understanding is that the former is about participatory public planning for environmental goals, in line with the UN’s Agenda 21, so it is addressed at either public autorities or city-based civic movements? Corporate reform on the other hand, refers to changes in ownership and governance to obtain altogether different types of market entities, which would no longer be classic for-profit maximiising corportions, but mission-driven, purpose-driven, stakeholder-owned types of entities.

    My own p2p point of view proposes to share innovation in a commons of knowledge, code, or design, and to create distributed enterprise around it, which are maker- and/or user-owned, are structured around their mission, and adopt the Peer Production License to keep the value flows within the sphere of the commoners, to create a sustainable ‘circulation of the common’, which would replace the ‘circulation of capital’.

    Michel

  5. peadar oceallaigh Says:

    Michel

    Public participation in changing environmental goals towards either public autorities or city-based civic movements? (as you explain)is the same as corporate reform since both (private) corporations and the state are now one and the same.

    Whilst those who are trying to establish a “commons” this would require either a uprising and land seizure from private landowners or legislation to give common land back to the people. As it is particpating in environmentalist groups which are greenwashed is (according to some ) simply giving consensus to financed groups to give them power to own or rent land at public expense.In effect they run it as a corporation again. Do you agree ?

    peadar oceallaigh

  6. Michel Bauwens Says:

    The key for me is to strengthen the autonomy of the commoners and the commons economy by all means, and that means a pragmatic attitude that sometimes requires working with or within institutions, sometimes against them. The key is to be guided by your own interests, to have a realistic idea of your strengths and weaknesses, and not be guided by the enemy (though obviously their tactics have to be taken into account). I also think we should be prefigurative, i.e. that our means should reflect our goals. Not any means are justified if their extension would mean ending up with a new type of oppression.

    Michel

  7. peadar oceallaigh Says:

    Michel

    ok well this is a large subject and your paper on conservatives (britain) privatizing the commons has been ongoing since the levelers and from the dawn of time, to the determent of common people. Today in parallel, environmentalist groups are removing people from the commons also. The right to roam is removed by legislation as is land ownership as people are pollutants on the earth. Yet the world bank and imf (the united nations) are funding un-environmental projects even on protected areas. So the commons is removed by both left and right, funded by ultimately the same source of banking interests with different marketed philosophies.

    hence local agenda 21 which kind of falls between these two familiar models as public autorities or city-based civic movements which are sweeping up the rest of the land. This amidst millions of large landowners who own millions of acres of idle or fallow land worldwide. (no land shortage, only common ownership shortage).

    so my question/point which rosa koire is making http://www.youtube.com/watch?v=CEHWsdimVO4&feature=player_embedded#! and a typical (could be anywhere worldwide) participatory meeting with everyday peoplewho see land removed from their influence (whether they are any better or worse than the new state owners) http://www.youtube.com/watch?v=vA4GKUUxkhA

    People do not want to compete within these philosophies only to work the commons ..which ultimately always (since Sumerian times)eventually involves the exchange of some form of money as commodity until a system of currency is also common, eradicating this by legislation will not work, and capitalism collapsing to move into socialism for some on the left means twenty acres of land, well paid work and housing food and water as a right, without a bureaucrat or landlord telling people whaat to do.

    What do you think of Rosa’s explanation , she is an estate appraiser.

    Kind Regards

    Peadar

  8. Michel Bauwens Says:

    I haven’t listened to the whole thing, but from the first 15 minutes or so, I totally disagree with Rosa. If it were not a toothless initiative from the UN, I would actually support the agenda, but improve on its participatory aspects. I consider the Tea Party to be a quasi-fascist social force, probably the most dangerous social force in the world, given its nexus in the heart of Empire and the support it gets from the most regressive social forces within the 1%.

  9. peadar oceallaigh Says:

    Michel

    Rosa is a democrat and states she is gay in the video, so i doubt fascism is on the agenda.

    Participation in agenda 21 and many groups can be (not all) an illusion, the poor get poorer and agree to civic meetings which fulfills the bottom line for developers who dress down for such meetings but suit up the next day (a very basic explanation)

    civic in a state is in a corporation, the eu is a corportaion as is america and britain, state corporations or private overlap.

    I was hoping for your opinion on rosa who is a liberal.

    Regards

    Peadar

  10. Michel Bauwens Says:

    I have no opinion on Rosa. I only have a problem in seeing global conspiracies for UN domination … The UN is a very weak institution, mostly paralyzed in what it does, subject to great power struggles. One of the very few things that would be good, if it were not ineffectual, would be the Agenda 21, based on voluntary coordination. I doubt a true ‘liberal’ would talk to Tea Party meetings, one of the main opponents of the common good in the U.S.. financed by the plutocracy, and intent on destroying the little that remains of the welfare state for the benefit of the 1%.

  11. peadar oceallaigh Says:

    Michel

    The UN represents many countries and the world bank and its sister bank the imf are un institutions so im not sure about bieng weak (you cany join world bank until you have been robbed by the imf). rosa would speak to people first politics second.Fis Nua (a polityical party im in) made a submission to Rio+ 20 for agenda 21 (see Surveys. Letters, PDF’s & Articles on right hand side http://www.oisintrust.org/bridget1.htm ) im placing as many opinions as possible without bias. Rosa Koire is a liberal and sustainable principles and laws were signed into law in the usa by President George W. Bush Jan 24, 2007 (Executive Order #13423)who is as you say a fascist.

    I think both fascists and liberals have a stake in bullshitting people, what do you think

    peadar

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